‘Excess taxation overshadows rise of essential mobile telecoms services’, says report

Out-Law News | 27 Nov 2014 | 5:06 pm | 2 min. read

Mobile phones are now the “most popular and widespread form of personal technology on the planet”, with 3.6 billion unique mobile subscribers increasingly using their devices to access mobile money and a vast range of other services, according to a report by telecoms body the Global System for Mobiles Association (GSMA).

GSMA’s Digital Inclusion report for 2014 (90-page / 2.65 MB PDF) said: “Mobile money services are already gaining popularity in developing countries, whereby mobile operators and the financial industry are working to accelerate the availability of affordable financial services that provide safety, security and convenience to the unbanked.”

GSMA said the rise of mobile communications “offers a superb opportunity” to overcome the lack of fixed broadband in developing countries.

However, GSMA said the mobile sector in many nations “is the target of excess taxation that creates barriers to digital inclusion, especially in developing countries”.

“Even though mobile is an essential service, it is often taxed at a substantially higher rate than other sectors,” GSMA said. “While these taxes are often imposed to meet short-term fiscal targets, they come at the cost of immediate and long-term benefits from increased access to mobile internet, and ultimately greater government revenue.”

GSMA cited Kenya as one developing nation “still impacted by a 10% specific tax on airtime as well as a tax on mobile money”. According to GSMA, the airtime tax in Kenya is “amongst the highest in Africa and contributes to the high proportion of the total cost of mobile ownership attributed to tax, which at 21% is well over both the African and the global average”.

“The airtime tax is regressive in nature and serves as a barrier to digital inclusion, while the mobile money tax limits financial opportunities for the unbanked,” GSMA said.

The report said: “The combination of low incomes, the cost of the device, charging fees, and data plan payments creates an affordability barrier to accessing the mobile internet. This issue is compounded by government taxes and fees, such as airtime taxes and handset taxes. Taxes on mobile consumers restrict access and usage by reducing affordability, while taxes on mobile operators limit incentives for investment in networks. Yet mobile is often subject to higher taxation than other sectors. Reducing mobile taxes has been demonstrated to increase digital inclusion, as well as mobile operator investment, leading to a greater economic contribution from the mobile industry which ultimately expands the tax revenue base for governments.”

A survey published earlier this year by Swedish company Ericsson (8-page / 224 KB PDF) said mobile financial services in sub-Saharan Africa are increasingly popular as the use of information and communications technology (ICT) grows. However, the survey said: “Mobile operators and relevant ICT stakeholders, including governments, must drive the development of appropriate infrastructure to handle the growing traffic demand on networks.”

In May, the International Finance Corporation (IFC), a member of the World Bank Group, announced a $2m advisory services agreement with Tigo Ghana to develop and expand mobile financial services in Ghana. The project was part of the Partnership for Financial Inclusion, a joint $37.4m initiative of IFC and The MasterCard Foundation to expand microfinance and extend mobile financial services in sub-Saharan Africa.